Explain What Is Meant by an "Insurable Interest" and How

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The Answer is Discussion: One of the most important aspects of insurance law is the requirement that the person taking out insurance have an insurable interest in the thing insured.Students should demonstrate an understanding of what an insurable interest is and why it is so important.The insurable interest requirement is simply that it be clear that the person purchasing insurance coverage will lose something if the insured against event happens.Thus,when the insurance is paid,there is no windfall to the person taking out the insurance; rather,there is simply compensation for a loss.Otherwise,it would be like gambling.You place a wager that the house in question will burn down,and when it does,you win.Of course,you don't win,and the insurance is just a way of spreading the risk; however,if you could insure something you didn't have such an interest in,such as your neighbour's house,you could get a windfall,and it would be like gambling. Students must first show they understand this and then could explain how insurable interest works in different situations.Where you have an interest in property and insure it,you can collect only what you can lose (to the limit of that interest).Where life insurance is involved,the extent of the interest is assumed to be the amount of insurance coverage purchased.With a relative,the presence of an insurable interest is clear,but with others,permission is normally needed.Often the life of key employees or the principal of the business will be insured to cover against the loss to the business were that key employee to die suddenly.

Explain What Is Meant by an "Insurable Interest" and How

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